The Challenge
How does someone with a low-wage job climb the ladder of economic prosperity? How can a small paycheck be the first step to financial stability and a permanent reprieve from poverty? Families must be financially informed and have access to the nuts and bolts of our economy--financial services, access to capital, savings and investment opportunities--the catalyst for generating individual wealth. And these building blocks are especially critical to poor families living paycheck to paycheck, struggling to get ahead and vulnerable to asset-stripping predatory financial services.
Yet today, nationwide it is estimated that 8.4 million families lack bank accounts. Here in New York City a minimum of 800,000 New Yorkers are unbanked. Fewer than half of our city's immigrants are believed to be using formal banking institutions. More than 40% of New Yorkers have zero assets or negative net worth. And the distribution of "fringe banking" services--check cashers, rent-to-own stores, pawnshops, etc.--perfectly map to New York's extreme poverty neighborhoods.
At CWCID, our energies are devoted to reaching individuals who are caught in this spiral of poverty, unable to participate in the mainstream economy. A sample of who we serve is the following profile of our 2007 participants: At intake, 42% of our clients had no established credit history and 45% had significant debt; only 30% reported ever having a savings account before, only 15% reported considering a bank or credit union when in need of a loan, and almost all those with credit scores below 620.
We know that low-income families need financial services which work for them instead of against them, which provide access to affordable financial services and capital, with hard-earned funds safe, secure, and earning a return.
The damage which can be wrought by predatory financial services is clearly written across every town in America now struggling with foreclosure rates. And this is only one symptom of a more systemic problem of broad financial illiteracy among all income levels, with the poor especially likely to be victimized and with so much to lose.
What happens when this cycle is reversed? According to a 2007 Brookings Institution report, as much as $360,000 in pre-tax wealth could be created if the average, full-time unbanked worker invested in the stock market what he will spend over his lifetime paying to cash his paychecks. That would allow one of those workers to finance about 25 years of retirement at his current standard of living.
Here at Credit Where Credit Is Due we daily witness families opening their first savings account at Neighborhood Trust Federal Credit Union, adhering to rigorous financial plans, slowly digging themselves out of debt and pursuing long-term goals such as college for their children.
We know that in the short-term, every dollar invested in our financial programs means at least $2 more in our participants' pockets. And we are now in the process of quantifying the real impact of this investment, when these $2 are in the hands of a more financially informed, self-confident and resourceful household pursuing a smart, long-term asset development strategy.
As families in our low-income community strive to achieve wealth creation goals such as career development, entrepreneurship, higher education, and homeownership, it is imperative that financial literacy be part of the road map towards achieving these goals. Economic empowerment must be the foundation of any successful strategy for escaping poverty. |
